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Hospital supply chain: One way to slash costs by nearly 20%

Joining a group purchasing organization can have a ripple effect that reduces expenses across the entire system, with the potential to save billions.

Jeff Lagasse, Associate Editor

When a hospital affiliates with a group purchasing organization, it does so typically to realize savings in its supply chain. A new report reveals that those savings can be significant, sometimes representing up to 18 percent of total supply chain costs.

This has a ripple effect that can result in savings across the entire healthcare system, according to new findings from the Healthcare Supply Chain Association. The industry is projected to save between $392.4 and $864.4 billion between 2013 and 2022.

Facilities leverage GPOs by taking advantage of the price discounts and efficiencies inherent in consolidated purchasing power. But GPOs can also help providers slash costs by providing them with an effective analytics framework.

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Hospitals are increasingly looking to take costs out of their supply chain. Just this week, the National Bureau of Economic Research found that after mergers, healthcare organizations save just 1.5 percent on expenses in the supply chain -- somewhat surprising given that executives commonly cite savings as among the reasons for M&A in the first place.

According to the Healthcare Supply Chain Association's new report, one hospital in particular optimized its cardiac management purchasing by working with a GPO, ultimately realizing $3 million in annual savings. The GPO's analytics found that the facility's pricing model didn't yield the best pricing it could, basing that finding on purchasing and utilization patterns, which were them compared to those of other hospitals.

After reducing the number of vendors in its service line and renegotiating purchasing contracts, cardiac rhythm management is now a profitable service line for the hospital, the report showed.

Another hospital in the study tapped its GPO to help it centralize purchasing and set up an inventory management framework, a tactical change that helped it realize 49 percent savings in facility service contracts, 38 percent on lab agreements, 12 percent in lab equipment purchases and another 10-15 percent on IT.

Other benefits of GPOs, according to the report, include increasing competition, advancing innovation and boosting transparency.

Hospital finance and operations executives can also reap big cost savings in existing supply chain purchase service contracts relatively easily and quickly, simply by renegotiating vendor contracts

All told, it adds up to a supply chain picture that offers plenty of opportunity for cost-saving tucks and tweaks.

Twitter: @JELagasse
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